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New Jersey Bankers’ Association
Decedents’ Accounts Seminar
Gerard G. Brew, Esq.
Laura A. Kelly, Esq.
Timothy M. Ferges, Esq.
2
What is “probate”?
3
Probate Assets Non-Probate Assets
Jewelry
Furniture
Car
Real Estate in Sole Name
Life Insurance Payable
to Estate
IRA
P.O.D Account
Trust Account
Real Estate with Rights
of Survivorship
Life Insurance Payable
to Beneficiary
Examples:
4
Intestacy: So you die without a will...
...and you’re married, with descendants.
Are all of your surviving descendants also descendants
of your surviving spouse, and there is no other
descendant of your surviving spouse surviving you?
If so, your surviving spouse gets the entire intestate
estate.
5
Ozzie Harriet
m.
RickDavid
Intestacy – Look to NJ Statute
6
Ozzie Harriet
m.
RickDavid
Intestacy – Look to NJ Statute
7
Ozzie Harriet
m.
RickDavid
Intestacy – Look to NJ Statute
8
Intestacy: So you die without a will...
...and you’re married, with descendants.
Are all of your surviving descendants also descendants of
your surviving spouse, but your surviving spouse has one
or more descendants who aren’t descendants of yours?
Do you have surviving descendants who aren’t also
descendants of your surviving spouse?
If so, your surviving spouse gets:
♦ The first 25% of the intestate estate (but not less than
$50,000 or more than $200,000), plus
♦ One half of the balance of the intestate estate.
9
Mike
m1.
PeterGreg Bobby
m2.
Carol
m1.
JanMarcia Cindy
Intestacy – Look to NJ Statute
10
Mike
m1.
PeterGreg Bobby
m2.
Carol
m1.
JanMarcia Cindy
Intestacy – Look to NJ Statute
1/2 of Balance
1st 25% of Intestate Estate (not less than $50,000 or more than $200,000) Plus 1/2 of Balance
11
Intestacy: So you die without a will...
...and you’re married, without descendants.
Is one of your parents living?
If so, your surviving spouse gets:
♦ The first 25% of the intestate estate (but not less than
$50,000 or more than $200,000), plus
♦ Three fourths of the balance of the intestate estate.
If not, your surviving spouse gets the entire intestate estate.
12
Intestacy – Look to NJ Statute
m. m.
m.
Husband Wife
13
Intestacy – Look to NJ Statute
m. m.
m.
Husband Wife
1/4 of
Balance
1st 25% of Intestate Estate (not less than $50,000 or more than $200,000) Plus 3/4 of Balance
14
Intestacy: So you die without a will...
What happens to the property not disposed of under the
above slides?
In general, property will pass:
♦ To your descendants or, if none is living,
♦ To your parents, equally or all to the survivor of them, or, if
neither is living,
♦ To the descendants of your parents, or either of them, or, if none
is living,
♦ Half to your maternal grandparents (or, if deceased, their
descendants) and half to your paternal grandparents (or, if
deceased, their descendants) or, if none is living,
♦ To your stepchildren or their descendants.
15
Intestacy – Small Estates
♦ Affidavit of Surviving Spouse
– Estate $20,000 or less
♦ Affidavit of Next of Kin
– No Surviving Spouse
– Estate $10,000 or less
16
Federal Estate Tax
♦ Gross Estate
– Real Estate
– Stocks + Bonds
– Cash
– Life Insurance
– Some Trust Interests
– Tangible Personal Property
– Retirement Plans
– Joint Property
17
Federal Estate Tax Exemption and Estate Tax Rates
Year Exemption Rate
2015 $5,430,000 40%
2016 $5,450,000 40%
2017 $5,490,000 40%
18
Federal Estate Tax
♦ Accounts are not frozen and waivers are not required
for federal estate taxes on personal assets.
19
New Jersey Estate Tax
♦ Prior Law
– NJ imposed an estate tax equal to the credit granted
under the Federal Estate Tax.
20
New Jersey Estate Tax – 2001 Change
to Federal Estate Tax
♦ Example: $2 million taxable estate – NJ Estate Tax
YearCredit for State
Estate Tax
Actual NJ
Estate Tax
2001 $99,600 $99,600
2002 $74,700 $99,600
2003 $49,800 $99,600
2004 $24,900 $99,600
2005-2007 $0 $99,600
21
New Jersey Estate Tax
♦ Prior to January 1, 2017
– For those dying between January 1, 2002 - December 31,
2016, NJ Estate Tax Exemption was $675,000.
Federal Estate
Tax Exemption
(w/o inflation adj.)
NJ Estate
Tax Exemption
Exposed to NJ Estate Tax
$391,600 NJ Tax Due
22
New Jersey Estate Tax
♦ Current law
– For those dying after January 1, 2017 - December 31, 2017,
NJ Estate Tax Exemption is $2 million.
Federal Estate
Tax Exemption
(w/o inflation adj.)
NJ Estate
Tax Exemption
Exposed to NJ Estate Tax
$292,000 NJ Tax Due
23
New Jersey Inheritance Tax
♦ Class A Beneficiaries:
– Parents, grandparents, spouse, children, adopted
children, issue of children or adopted children, step
children and mutually-acknowledged children
– Also (since July 10, 2004) a domestic partner of the
decedent and (since February 19, 2007) a civil union
partner of the decedent
♦ Exempt Amount: All
24
♦ Class C Beneficiaries:
– Brother or sister of the decedent, wife or widow of the
decedent’s son, husband or widower of decedent’s
daughter
♦ Exempt Amount: $25,000
♦ Tax Rates:
– Any amount up to $1,100,000 11%
Any amount over $1,100,000 up to $1,400,000 13%
Any amount over $1,400,000 up to $1,700,000 14%
Any amount over $1,700,000 16%
New Jersey Inheritance Tax
25
New Jersey Inheritance Tax
♦ Class D Beneficiaries:
– All other transferees
♦ Exempt Amount: None
♦ Tax Rates:
– Any amount up to $700,000 15%
Any amount over $700,000 16%
26
New Jersey Inheritance Tax
♦ Class E Beneficiaries:
– Tax exempt entities and organizations
♦ Exempt Amount: All
27
Tax Liens
♦ NJ Estate Tax
– Tax remains a lien on all property of the decedent until paid.
– No property owned by the decedent may be transferred
without the written consent of the Director of the Division of
Taxation.
♦ NJ Inheritance Tax
– Tax remains a lien on all property of the decedent for a
period of 15 years after the decedent’s death, unless sooner
paid or secured by a bond.
– To transfer certain property, need the written consent of the
Director of the Division of Taxation.
♦ Director’s written consent = “waiver”.
28
Examples of Transfers NOT Requiring a Waiver
N.J.A.C. 18:26-11.13
♦ Automobiles
♦ Household goods and personal effects
♦ Payment under pension, profit sharing, bonus or stock
purchase plans
♦ Funds held in an account in the name of a funeral director
in trust for decedent (advance funeral payments)
♦ Real or personal property owned by a partnership in which
the decedent had an interest (N.J.A.C. 18:26-11.11)
♦ Property not subject to NJ Inheritance Tax or NJ Estate
Tax (N.J.A.C. 18:26-11.14)
29
Fiduciary to Fiduciary Transfers
– N.J.A.C. 18:26-11.9, - 11.10
♦ Bonds or stock of a NJ corporation or national bank
located in NJ or any money deposited in a bank or
other institution...
– in the name of a fiduciary as executor, administrator,
trustee of guardian may, upon the fiduciary’s death, be
transferred without a waiver to, or on the order of, the
deceased fiduciary’s legally-appointed substitute.
– in the name of two or more fiduciaries as executor,
administrator, trustee of guardian may, upon the
fiduciary’s death, be transferred without a waiver to, or
on the order of, the surviving fiduciary or fiduciaries.
30
Trusts
– N.J.A.C. 18:26-11.13(c)
♦ Waivers are not issued for the transfer of property held
in revocable or irrevocable trusts (even if the transfer
may be taxable).
31
Nonresident Decedents –
N.J.A.C. 18:26-11.1(b)
♦ Not subject to NJ estate tax.
Only subject to NJ inheritance tax on real estate and
tangible personal property that is located in NJ.
– No waiver required (except to transfer NJ real estate)
– However, need affidavit of domicile from personal
representative of decedent’s estate.
– Keep affidavit of domicile on file permanently.
32
No Waiver Needed; Notice Required –
N.J.A.C. 18:26-11.8
♦ No waiver is needed for the transfer of:
– A decedent’s checking account in any bank to an
interest-bearing account in the same bank in the name
of the decedent or his estate,
– An IRA or Keogh retirement plan account to another
account in the same bank, or
– A CD or other preferred account containing the
decedent’s funds to another account in the same bank.
33
No Waiver Needed; Notice Required –
N.J.A.C. 18:26-11.8 (continued)
IF: The bank retains the same control over the substituted account as
the original account until the NJ estate and inheritance taxes are paid,
AND:
The bank notifies the Transfer Inheritance and Estate Tax Section of
the Individual Tax Audit Branch (P.O. Box 249, Trenton, NJ 08646) of
the decedent’s name, (ii) his date of death and domicile, (iii) the
executor’s name and address, and (iv) the account number (or
certificate number) to be transferred and its balance (or maturity value)
as of the date of death.
34
Form L-8
♦ May only be used if decedent’s taxable estate plus adjusted taxable gifts is
$675,000 or less (death in 2016 or prior) or less than $2 million (after
2017).
– A self-executing waiver that allows the transfer of intangible NJ assets
(e.g., bank accounts, stocks and bonds) to a Class A beneficiary (other
than a mutually-acknowledged child).
– Class A beneficiary (for L-8 purposes) = Parents, grandparents,
spouse, children, adopted children, issue of children or adopted
children and step children.
– A civil union partner may use Form L-8 for decedents dying on or after
February 19, 2007.
– A NJ domestic partner with a NJ Certificate of Domestic Partnership
may use Form L-8 for decedents dying on or after July 10, 2004. If
relationship established outside of NJ, cannot use Form L-8.
– Filed directly with the bank or stock transfer agent.
35
Form L-8
Does the account pass to a Class A beneficiary as the surviving
joint tenant or as the named beneficiary of the account?
♦ The Class A beneficiary can execute Form L-8. The account is
released to the Class A beneficiary.
Does the account pass to a Class A beneficiary under the will?
♦ The executor or administrator can execute Form L-8. The
account is released to the Class A beneficiary.
♦ The Class A beneficiary can’t execute Form L-8 to transfer the
account to himself, unless the Class A beneficiary transferee
qualified as executor or administrator. If so, attach will to Form
L-8.
36
Form L-8
♦ The bank must thoroughly instruct the person signing
the form as to its contents.
♦ The original Form L-8 must be filed with the Division of
Taxation within 5 business days of its execution.
37
Blanket Waiver – N.J.A.C 18:26-11.16
♦ Applies to:
– Any banking institution, trust company or safe deposit
company organized under the laws of NJ
– Any national bank operating in NJ, building and loan or
savings and loan association organized in NJ
– Any credit union charted by the U.S. and operating in
NJ
– Any corporation or person
38
Blanket Waiver – Release of Funds
♦ Permits a banking institution to release any amount up to 50% of the
entire amount of funds on hand held in deposit, standing in the name of
a resident decedent or in the joint names of the decedent and one or
more other persons to:
– An executor
– An administrator
– The legal representative of the decedent
– A surviving joint tenant
– A cestui que trust (a person who has the beneficial interest in property, the
legal title in which is vested in a trustee)
– The estate of a minor, where title to the funds are held in the name of a
custodian for the minor
...without a waiver, upon the application of such property party to the
bank.
39
Blanket Waiver – Caution:
Joint Accounts
♦ The blanket waiver is limited to 50% of the funds in the
entire account, whether held by the decedent
individually or jointly with another.
♦ In a joint account, only 50% of the account may be
released – not the half claimed by the joint owner AND
an additional half of the funds belonging to the
decedent.
40
Blanket Waiver – Permitted Payments
♦ No waiver is needed for the banking institution to:
– Pay checks drawn on the decedent’s account that are
issued prior to death and presented for payment within
10 days after the decedent’s death
– The amount of any checks so paid is deducted from the
value of the account before calculating the 50% that
may subsequently be released under the blanket
waiver.
– Pay checks representing full or partial payment of NJ
inheritance tax or estate tax that are made payable to
“New Jersey Inheritance and Estate Tax”.
41
Blanket Waiver – Permitted Payments
– Liquidate the loan of a decedent who has pledged the
pass book representing a savings account as collateral
for the loan where, upon the decedent’s death, the loan
is in default.
– After the liquidation, 50% of the remaining funds may be
made available for release under the blanket waiver.
42
Blanket Waiver
♦ The blanket waiver does not apply to the transfer of
securities of a NJ corporation, registered in the
decedent’s name and issued by any bank or savings
and loan association situated in NJ.
(N.J.A.C. 18:26-11.16(d))
♦ A waiver must be obtained to transfer or release such
assets.
43
Waiver Required
♦ If one of the above exceptions does not apply, a waiver is
needed to release or transfer a decedent’s assets.
♦ Waivers generally are issued upon acceptance by the tax
authorities of the NJ estate and inheritance tax returns as
filed (or, if audited, after the tax proceedings have been
completed and the tax payment has been received).
♦ Unless the Director expressly approves, waivers are not
issued until the passage of 10 business days after the
receipt of the tax payment. A request can be made to
transfer a specific asset or assets by submitting a
preliminary affidavit (Form L-4).
44
Payable on Death Accounts --
N.J.A.C. 18:26-11.18
♦ Where funds are held on deposit to the credit of a
person and payable upon the death of such person
(the “principal”) to a named beneficiary:
– If the named beneficiary dies, no waiver needed to
transfer or release the funds to the principal.
– If the principal dies, a waiver is needed to transfer or
release the funds to the named beneficiary.
45
Penalty
♦ Any institution failing to comply with the waiver rules is liable
for (i) the amount of tax and interest due upon the securities,
deposits, shares of stock or other assets transferred or
delivered AND (ii) a penalty of $1,000. N.J.A.C. 18:26-
11.32(a)
♦ Exception: A safe deposit company, trust company, bank,
other institution, corporation or person is not liable for the tax
and interest or penalty where it delivers securities, deposits
shares of stock or other assets belonging to or standing in the
names of two or more persons to one of such persons without
knowledge or reasonable ground to believe that another one
of such persons is dead. N.J.A.C. 18:26-11.32(b)
46
Safe Deposit Boxes
♦ N.J.A.C 18:-26-11.20 provides for a blanket release to
be issued by the Transfer Inheritance Tax Branch to
safe deposit companies, trust companies, banks and
other institutions allowing for the release of the
contents of a safe deposit box without inspection and
inventory.
♦ In the presence of a bank employee, the executor
(upon proof of identity) can have access to a safe
deposit box immediately after the decedent’s death to
remove the original will.
47
Durable Powers of Attorney
♦ Definition
♦ When Effective
♦ Revocation
♦ Reliance by Banking Institutions / Grounds for Refusal
48
Example: Fiduciary to Fiduciary
Transfers
♦ Richard acts as trustee of the Worthington Trust. The
trust has an account with New Jersey Bank. Richard
dies. His wife, Emily, who is named in the trust
instrument as successor trustee, wants to move the
trust’s account to a different bank that is closer to her
home.
– No waiver required because the account is in the
Worthington Trust’s – not Richard’s – name.
49
Example: Fiduciary to Fiduciary
Transfers
– Before transferring the funds to Emily, as trustee,
consult senior management or the bank’s attorney to
review:
– A copy of Richard’s death certificate,
– The document creating the Worthington Trust, and
– Emily’s acceptance of her appointment as trustee of the
trust.
50
Examples: P.O.D. Account
♦ New Jersey Bank has an account entitled “Abigail
Adams, P.O.D. John Q. Adams”.
A. John, Abigail’s son, dies.
Upon proof of John’s death, the bank can pay the
entire account to Abigail. No documents are
necessary.
51
Examples: P.O.D. Account (continued)
B. Abigail dies.
– Upon proof of Abigail’s death, the bank can distribute 50% of the
account to John under the blanket waiver.
– (If John were under age 18, the bank could distribute 50% of the
account to John’s legal guardian. (Need certificate of
appointment of guardian from the Surrogate.))
– Balance of the account
– If Abigail’s taxable estate plus adjusted taxable gifts is less than
$2M, the bank can release the balance to John upon receiving
Form L-8.
– If Abigail’s taxable estate plus adjusted taxable gifts is $2M or
more, the bank can release the balance to John only upon receipt
of a waiver.
52
Examples: Nonresident Decedent
♦ Wayne Newton, a long-time resident of Las Vegas, Nevada, dies at
age 98 while performing a particularly vigorous show at Caesar’s
Palace. At New Jersey Bank, there is (i) a bank account in his own
name, and (ii) a bank account held by Wayne and his cousin, Fig, as
joint tenants with rights of survivorship.
– First consideration (for either account): Need an affidavit of
domicile.
– If any doubt as to whether Wayne was not a NJ resident, have the
representative of Wayne’s estate contact the NJ Inheritance Tax
Branch for a ruling before releasing more than one half of the
account.
– If Wayne was not a NJ resident, no waiver is necessary to transfer
the accounts.
53
Examples: Nonresident Decedent
(continued)
♦ Wayne’s account
– Need Surrogate’s Certificate from the State where
Wayne died domiciled.
– Pay account assets to “Estate of Wayne Newton”.
♦ Account of Wayne and Fig
– Need Wayne’s death certificate.
– Assets of entire account may be released to Fig.
54
Example: Safe Deposit Box – Part 1
♦ Fester Adams appears one day at New Jersey Bank to report
that his brother, Gomez, has died. Fester tells Tabitha Teller
that he is named executor of the will, which he believes to be in
the safe deposit box that Gomez maintained at New Jersey
Bank.
– Fester provides Tabitha with Gomez’s death certificate.
– Fester provides Tabitha with proof of his identity.
– Tabitha accompanies Fester as he opens the safe deposit
box. It contains Gomez’s will and some Spanish doubloons.
– Tabitha checks Gomez’s will, and it does name Fester as
executor.
– Tabitha allows Fester to remove only the will.
55
Example: Safe Deposit Box – Part 2
♦ Fester Adams, having been appointed executor of the will of his
brother, Gomez, appears at New Jersey Bank to remove the
contents of Gomez’s safe deposit box.
– Fester provides Tabitha Teller with Gomez’s death certificate.
– Fester provides Tabitha with a short certificate.
– No waiver needed to release the contents of the box to
Fester, without inventory and inspection of contents.
56
Example: Powers of Attorney
♦ Before leaving for prison, Carlos gives his wife power
of attorney over his checking account with New Jersey
Bank. Carlos dies in prison. His grieving widow,
Gabrielle, attempts to withdraw all of the funds from
the account under her power of attorney.
♦ The bank may not distribute the funds to Gabrielle.
Her authority under the power of attorney terminated
upon Carlos’ death.
57
Example: Estate #1
♦ Ozzie Nelson died, survived by his wife, Harriet, and
his sons, David and Rick. Ozzie’s taxable estate is
less than $2M, and he made no lifetime gifts. He has
the following accounts at New Jersey Bank:
– Bank account in his name alone $100,000
– Bank account held jointly with
rights of survivorship with Harriet $200,000
58
Example: Estate #1 (continued)
♦ Ozzie’s will leaves everything to Harriet. Harriet is named
executor.
– Ozzie’s account
Need to see a short certificate.
Harriet is a Class A beneficiary, and Ozzie’s taxable estate is
less than $2M. Upon receipt of L-8, can pay account to “Harriet
Nelson”.
– Joint account
A joint account is a non-probate asset. No need for a short
certificate.
Harriet, the surviving joint tenant, is a Class A beneficiary.
Ozzie’s taxable estate is less than $2M. Upon receipt of
L-8, can pay account to “Harriet Nelson”.
59
Example: Estate #1-A
Before Ozzie died, he won the NJ lottery. At his death, he
left a gross estate – with everything held in an account at
NJ Bank – valued at over $22 million. Ozzie made no
taxable gifts before he died.
Ozzie’s will leaves everything to his wife, Harriet, who
survived him. Harriet is named executor.
♦ Need a short certificate.
♦ Harriet is a Class A beneficiary. Although Ozzie’s gross
estate exceeds $2M, his taxable estate does not. Upon
receipt of L-8, can pay account to “Harriet Nelson”.
60
Example: Estate #2
Jackie died, survived by her daughter, Caroline. Jackie’s husband
predeceased her. Jackie’s taxable estate exceeds $675,000. She has
the following accounts at New Jersey Bank.
Date of Death Balance
Checking account in her name alone $100,000
Checking account held jointly with rights
of survivorship with Caroline $500,000
Jackie’s will leaves everything to Caroline except a gift to a friend.
Caroline is named executor.
Just before she died, Jackie wrote a check for $10,000 to pay the
upkeep on one of her horses. The check did not clear before she died.
61
Example: Estate #2 (continued)
♦ Checking account
– Two days after Jackie’s death, the “horse” check is
presented for payment. The bank may pay the $10,000
to the stable.
– Upon receipt of Caroline’s short certificate, the bank can
distribute up to $45,000 to “The Estate of Jackie”.
The blanket waiver permits the bank to release 50% of
the account.
($100,000 date of death balance, less $10,000 check
payment) / 2 = $45,000
62
Example: Estate #2 (continued)
– Balance of individual checking account
L-8 may not be used because Jackie’s taxable estate
exceeds $2M.
– Caroline, as executor, writes a check for $25,000 to
“New Jersey Inheritance and Estate Tax” to pay part of
the NJ inheritance tax due (gift to friend). The blanket
waiver permits the bank to pay this check.
– Upon receipt of Caroline’s short certificate and a waiver,
the bank can distribute the remaining balance ($20,000)
to Caroline.
63
Example: Estate #2 (continued)
♦ Joint account with Caroline
– The bank can distribute $250,000 to Caroline, as
surviving joint tenant.
The blanket waiver permits the bank to release 50% of
the account.
$500,000 date of death balance / 2 = $250,000
– Balance of account
L-8 may not be used because Jackie’s taxable estate
exceeds $2M.
Upon receipt of a waiver, the bank can distribute thee of
the account to Caroline.
64
Disclaimer
These are general rules that are provided as guidelines.
Rules can (and often do) change!
Every situation is different. If you have any doubt about
if, when and how much of a decedent’s account should
be released, you should consult senior management
and/or an attorney.